(Rewrites after Thyssen CFO conference call, adds analysts)
By Alex Clelland and Baerbel Brockmann
LONDON/DUESSELDORF, Germany, Feb 21 (Reuters) - German steel maker ThyssenKrupp AG reacted angrily on Friday after credit rating agency Standard & Poor's cut its debt to "junk" status, but vowed to hasten disposals to bolster its finances.
ThyssenKrupp , which became the first European company to suffer a rating cut specifically attributed to a pensions fund shortfall, sharply criticised S&P's decision and said its financial situation had improved, not deteriorated, since its first rating was issued in 2001.
"There were no new facts...S&P simply added the 7.1 billion pension accruals to our net debt. If you add that to the 4.7 billion debt you nearly triple it," ThyssenKrupp's Chief Financial Officer Stefan Kirsten told a conference call.
"We will look at our options. We can save more money, but we will not stop investing at all in our core businesses...We are working on a disposal programme, and we have told those people in our company to work on it a little bit harder," Kirsten said.
S&P cut ThyssenKrupp's long-term corporate credit rating by two notches to BB+, its highest "junk" or non investment grade, while the short-term rating was cut to B from A-2.
The group's shares dived over seven percent to a four month low on the news and were trading down 4.9 percent at 9.52 euros by 1604 GMT.
ThyssenKrupp Chief Executive Ekkehard Schulz said the ratings cut would lead to additional annual costs of up to 20 million euros ($21.6 million) over the next two years but added that the firm had no refinancing requirements until 2005.
"Given our successive debt cutting, we cannot understand this (downgrade). There's no reason to lose faith in this company," Schulz told the group's annual shareholders meeting.
The group's net debt stood at 4.9 billion euros at the end of December, down almost a third from a year earlier, but it also has pension obligations of around 7.1 billion euros.
Falling equity prices combined with global economic weakness have turned the spotlight on underfunded corporate pensions, with S&P saying on February 7 it may also cut the ratings of 11 other European firms because their pension funds may need topping up to meet their future liabilities.
MORE AGGRESSIVE RESTRUCTURING
ThyssenKrupp, the world's number four flat carbon steel producer, said it would not put a hold on investments and remained confident of significantly raising profits in its 2002/2003 fiscal year.
The group, whose high debt levels are of perpetual concern to investors, has said meeting a target of reducing its debt-to-equity ratio to 60 percent by cutting debt was a high priority in the current fiscal year, but acknowledged the ratio would be over 140 percent if pension obligations were restated as financial debt.
Thyssen has made a raft of disposals of non-core assets in recent years, but its debt continues to tie its hands as it restructures and tries to grow its elevator and automotive businesses, which require cash for acquisitions.
Some analysts said the downgrade would give a welcome impetus to restructuring efforts.
"We believe the downgrade to be another catalyst for a more aggressive restructuring strategy...on a long-term view we believe this creates a buying opportunity," UBS Warburg equity analysts said in a research note.
Thyssen's senior unsecured debt ratings and guaranteed entities were cut three notches to BB, which S&P said reflected the greater weight given to structural subordination for "junk" rated companies.
"The rating actions reflect Standard & Poor's treatment of unfunded pensions as debt-like in character. Including unfunded pensions in the calculation of the group's indebtedness, credit protection measures are weak," S&P credit analyst Olivier Beroud said in a statement.
Kirsten said management was committed to returning to an investment grade rating, but acknowledged that it would be extremely difficult for the group to do so in the near future given S&P's change in rating methods.
ThyssenKrupp's seven percent euro bond due March 2009 was quoted two percentage points lower at 96 percent of face value in early trading but recovered to be trading at par or two percentage points higher on the day.
The bonds have fallen sharply in value since S&P's warning over pension shortfalls on February 7.
Bankers said the cost of insuring ThyssenKrupp debt against default in the credit default swap market over five years rose to 4.25 percent of the amount at risk from 2.15 percent before the S&P downgrade. (Additional reporting by Nick Tattersall)